Entrepreneurial Planning: Notes

Table of Contents
1. What is Entrepreneurial Planning?
2. Different Forms of Business Entities
3. What is a Business Plan?
4. Organisational Planning
5. Production and Operational Planning
6. Financial Planning
7. Marketing Plan
8. Human Resource Planning
9. Creating the Plan
10. Formalities of Starting a Business
11. Conclusion
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What is Entrepreneurial Planning?

Enterprise planning is the process where a detailed study is conducted on various aspects of starting a business.

Entrepreneurial planning lays down a broad-level approach covering the organisational structure, operations and production, finance, marketing and human resources that an entrepreneur will follow while starting and running a venture.

• A broad-level plan is laid down in terms of organisational structure, operations and production, financial requirements, marketing strategy and human resource needs.
• This chapter explains in detail the various aspects of enterprise planning so that an entrepreneur can prepare a practical and implementable business plan.

Different Forms of Business Entities

Businesses in India (and generally elsewhere) may be organised in several legal forms. Common forms include:

• Sole Proprietorship
• Joint Hindu Family Business
• Partnership
• Cooperative Societies
• Joint Stock Company

Sole Proprietorship

Sole proprietorship is a form of business which is owned, managed and controlled by an individual.

The sole proprietorship is the oldest and simplest form of business. It is normally established with limited resources and capital of one person. The proprietor introduces his or her own capital, uses personal skill in managing the business and bears the entire responsibility for business results.

Sole Proprietorship

• The law does not make a distinction between the proprietor and the business. The business and the businessman are treated as one; consequently the proprietor has unlimited liability and his personal assets can be used to meet business liabilities.
• If the business earns profit, the sole proprietor enjoys all the profit; if it incurs loss, the proprietor alone must bear it.
• As Peterson and Plowman state, "A sole proprietorship has no legal existence apart from the proprietor himself. He is the firm." This highlights the proprietor's unlimited liability.
• Other common names for this form are sole trade, single ownership, one-man business and individual proprietorship.

Joint Hindu Family Business

Joint Hindu Family business is a form of business which is owned by the members of a Joint Hindu family. It is also known as Hindu Undivided Family (HUF).

• This is a unique Indian institution governed by Hindu law. It is typically managed by the head of the family, called the Karta, who has unlimited liability.
• Other members have limited liability. Membership in the family business is usually by birth for male children in the family under traditional rules.
• Management and decision-making rest with the Karta, though other members may have beneficial interests in the business.

Partnership

Partnership emerged to address some demerits of sole proprietorship such as limited resources and unlimited liability.

Definition: A partnership is an agreement between two or more persons to carry on a lawful business with a view to profit, where all or any of them act for all.

• According to the Indian Partnership Act, 1932, "Partnership is a relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all".
• Key features are mutual agency (partners can bind the firm), sharing of profits and losses, and a contractual relationship between partners.
• Liability of partners may be unlimited or limited depending on the kind of partnership (ordinary partnership, limited liability partnership etc.).

Cooperative Societies

Cooperative societies were formed to improve the economic conditions of weaker sections by cooperation rather than competition.

• A cooperative is a voluntary association of persons, usually of limited means, who join together to achieve common economic goals through a democratically controlled enterprise.
• In cooperatives the profit motive is secondary; the primary aim is service to members. Surplus is distributed among members equitably, often on a per-member basis rather than per-share.
• Saligman described cooperation as "the abandonment of competition in distribution and production and elimination of middlemen of all kinds."
• Sir Horace Plankatte described it as "self-help made effective by the organization."
• According to the International Labour Organization, "Cooperative is an association of persons usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled business organization."

Joint Stock Company

The industrial revolution required larger businesses with greater capital. The joint-stock company emerged to meet the needs of large-scale enterprises and to provide limited liability to investors.

• A joint-stock company is an artificial person created by law with a fixed capital divided into transferable shares, having perpetual succession and a common seal.
• The company has a separate legal entity; it must be registered and is owned by shareholders who subscribe to its shares.
• Management is by a board of directors elected by the shareholders; thus ownership and management are practically separated.
• The company's life is permanent and not affected by the death, insolvency or lunacy of members. Shareholders' liability is generally limited to the face value of the shares they hold.
• As Haney puts it, "A joint-stock company is a voluntary association of persons for profit, whose capital is divided into transferable shares and ownership is required for its membership."
• In the words of Kimbal and Kimbel, "Corporation by nature is an artificial person, which is created by law for a specific purpose."

What is a Business Plan?

A business plan may be defined as a written document of the business's future in terms of what you plan to do and how you plan to do it.

• In simple words, a business plan is a broad-level strategy for starting and growing a business over a 3-5 year horizon.

• The business plan records the detailed steps showing where you intend to start and where you expect to reach in three to five years with the available resources and capabilities.
• A business plan should be precise and lean rather than an overly detailed rigid document. It should set a broad structure and allow flexibility to adapt as the business progresses.

Key components a good business plan should include:

• Financial estimates: investment required and expected returns year-on-year.
• Operational strategy: how the business will operate to meet objectives.
• Customer-oriented strategy: identification of customer needs and how the business will satisfy them.
• Monitoring and control: mechanisms to identify deviations from targets and take corrective action.
• Detailed plans for organisational, production and operations, financial management, marketing and human resources.

Organisational Planning

Organisational planning depends on the form of business selected and the stage of growth; initially most entrepreneurs aim to be low-cost and simple, and move to more formal structures as the business grows.

• In the initial phase, entrepreneurs often keep the organisation simple and centralised to control costs and decisions.
• As the business expands, a more formal and decentralised structure becomes necessary to delegate tasks and manage complexity.

Stage 1: Initial Organisation

At start-up the organisational structure is simple and centralised.

• The entrepreneur performs most functions personally with minimal managerial or executive staff.
• There is usually reluctance to delegate and most decisions are taken by the entrepreneur.
• Organisational planning at this stage is informal and often resembles proprietorship with one person managing and controlling the business.

Stage 2: Growth Phase

When the business grows, the entrepreneur needs managers and executives to handle increasing work and complexity.

• Sub-managers are hired to coordinate, organise and control different functions such as production, sales and finance.
• Systems for measurement, evaluation, rewards and training become necessary.
• Entrepreneurs should decentralise tactical decision-making while retaining strategic control.
• The business may change form (for example, to a partnership or private limited company) to provide a more formal structure and to raise capital.

Stage 3: Maturity Phase

When the firm reaches a sizable scale, a third or higher managerial level becomes necessary.

• Managers must adapt to environmental changes, introduce innovations and help the organisation achieve strategic objectives.
• They are responsible for resource allocation, maintaining performance and handling external pressures while ensuring steady progress.

How to Build an Organisation Plan?

An entrepreneur should undertake the following steps when preparing an organisation plan:

• Design a broad-level organisational structure with clearly defined roles and responsibilities.
• Conduct job analysis for each role to identify required skills, duties and performance expectations.
• Assess workload and determine the number of people needed to fill the planned roles effectively.

Production and Operational Planning

Production and operational planning ensure that the goods or services can be manufactured and delivered efficiently. This is covered in two parts: production planning and operational planning.

Production Planning

Production planning covers decisions about the manufacturing process, the physical plant, machinery and equipment, and selection of suppliers.

• Manufacturing Process: Decide which processes will be carried out in-house and which will be subcontracted. Core activities such as assembly, design and finishing are often retained, while ancillary components may be outsourced. The level of control desired by the entrepreneur determines outsourcing choices (for example, a car company may subcontract components like brakes but retain final assembly).
• Physical Plant: Decide plant capacity, location and layout depending on production choices. Begin with a modest capacity to control costs, but design the plant to be scalable to meet future demand.
• Machinery and Equipment: Choose technology and machines based on whether the plant will be capital-intensive or labour-intensive. Capital intensity means higher investment in machines; labour intensity means more workers and lower machinery cost.
• Suppliers of Materials: Identify reliable suppliers through a competitive selection process. Suppliers should be able to provide quality raw materials at competitive prices and scale up supply when demand increases.

Operational Planning

• Operational planning defines workflows and processes - the specific activities that convert inputs into finished products.
• Assign clear roles and responsibilities and define approval and authorisation routes for routine activities (for example, material requisition approval from production manager to stores).
• Document workflows so that each step (requisition, issue, production, quality check, dispatch) is controlled and traceable.
• Operational planning should be linked to production planning and demand forecasts so that production, inventory and working capital are optimally balanced.
• Accurate demand projection is critical: insufficient inventory may lead to lost sales (e.g., failing to stock woollen sweaters in a sudden demand surge), while excess inventory ties up working capital.

Financial Planning

A financial plan assesses funds required to start and run the venture and projects future income, cash flows, break-even analysis and sources and application of funds.

The financial plan is the operating oil of the business. It must show projected profitability and cash flows that make the investment attractive to the entrepreneur and to potential investors or lenders.

Key components of the financial plan are:

• Income Statement: A pro forma (projected) income statement estimates future profitability. Revenue projections use product price and projected quantity sold. Expense projections use production volume and overheads. The income statement typically includes revenue, cost of goods sold, operating expenses, interest, depreciation and tax.

• Balance Sheet: The projected balance sheet is prepared using assumptions from the income statement. It includes projected capital expenditure, funding mix (debt and equity), loan repayment schedule, receivables, payables and inventory. The balance sheet shows the financial position of the business and how net worth evolves over time.

• Cash Flow Projection: A cash flow statement projects cash inflows and outflows and is vital because cash is essential for day-to-day operations. Cash flows are typically divided into:

• Cash flow from operating activities - cash generated or used in normal business operations (sales receipts, payments to suppliers, operating expenses).
• Cash flow from investing activities - cash used for capital expenditure (purchase of plant and equipment) or received from sale of assets.
• Cash flow from financing activities - cash received from or paid to investors and lenders (equity inflow, debt receipts, loan repayments, dividends).
• Break-even analysis is commonly used to determine the level of sales at which total revenues equal total costs. A practical formula is: Break-even point (units) = Fixed Costs ÷ (Selling price per unit - Variable cost per unit).

Comprehensive financial planning helps ensure funds are available when needed and that the venture can survive early-stage cash shortfalls and scale up when profitable.

Marketing Plan

Marketing planning covers pricing, distribution, promotion and control. Marketing begins before a product exists - market research influences product design - and ends with satisfying the consumer. The plan should ensure the product gains and retains market share.

Four important components of the marketing plan:

• Pricing: The amount a consumer pays for a product. Pricing affects demand and profits and is influenced by competition, cost of production and brand value. Pricing strategies include:
  • Economy pricing: Offer good quality at low cost to achieve high sales volume with low margins; targets price-sensitive customers.
  • Penetration pricing: Set low price initially to capture market share even if it means initial losses, hoping to scale and become profitable later.
  • Skimming pricing: Charge a high price initially to exploit a competitive advantage and recoup investment early, before competitors enter the market.
  • Premium pricing: Set price higher than competitors for a product with unique features or superior quality to build a premium brand and earn higher margins.

• Distribution: Choose territory coverage and distribution channels (wholesalers, retailers, dealers or online). Territory choice depends on connectivity to production, demographic factors, and market potential. Entrepreneurs usually start with a limited territory and expand as demand grows.
• Promotion: Promotional strategy includes advertising, discounts, schemes and other communication to create awareness and encourage purchase. Advertising media (print, TV, radio, digital) should be chosen based on target customers. Promotional offers should be consistent with profitability goals.
• Control: Marketing plans need periodic review. Set targets, measure performance, identify deviations and take corrective actions. Effective control determines how successful the marketing plan will be.

Human Resource Planning

The business plan should describe the organisational structure, management capability, the number of employees to be hired, recruitment process and estimated personnel costs. It should outline managerial experience of the entrepreneur and the team, roles to be played by each member, and any gaps to be filled.

• Outline the organisational structure with reporting lines.
• Provide job descriptions for key positions.
• Explain how key team members will be recruited and what their responsibilities will be.

Entrepreneurs need not have the complete team in place at plan-writing stage, but they should indicate how they will recruit and train required personnel. Many small ventures engage an HR consultant or hire an HR manager to manage payroll, benefits and regulatory compliance so the entrepreneur can focus on business growth.

Human resource strategy should describe the corporate culture to be nurtured and policies on pay, leaves, insurance and other benefits. These aspects help investors understand the cost and culture of the enterprise.

Creating the Plan

Once the organisational, production, financial, marketing and human resource plans are in place and information is gathered, the entrepreneur should write the full business plan in a clear, readable form covering all major aspects of operations.

The following components should form part of the business plan:

• Executive Summary: A concise summary following the title page, describing what the entrepreneur seeks from the project (funding, partnership, approvals) and the essence of the venture.
• Business Description: An overview of the industry, current outlook and future prospects; market segments; and any new developments affecting the business. The description helps readers understand the entrepreneur's business idea and market position.
• Financial Plan: Projected financial statements (income statement, balance sheet, cash flow), sources and application of funds and assumptions linking financial projections with production, marketing and HR plans.
• Organisation Plan: Roles and responsibilities of organisational hierarchies, job analysis and staffing plan.
• Marketing Plan: Market analysis, target market definition, product positioning, pricing, distribution, promotion and control measures.
• Human Resource Plan: Management capabilities, the number of employees required, recruitment plans and estimated personnel costs.

Formalities of Starting a Business

After the business plan is finalised, an entrepreneur must complete statutory and administrative formalities so operations can begin legally and smoothly.

• Obtain necessary licences, permits and registrations from relevant authorities (for example business registration, tax registrations, specialised licences where applicable).
• Complete required notifications, verifications and inscriptions for the company and employees (for example employer registrations, statutory contributions and labour compliances).
• Prepare internal processes, policies and procedures for conduct of business (accounting procedures, procurement rules, quality checks, grievance mechanisms).
• Conduct employee orientation so that new staff understand organisational values, culture, systems and their specific roles.

Conclusion

Entrepreneurial planning brings together organisational design, production and operational processes, financial projections, marketing strategy and human resource systems into a coherent document that guides the launch and growth of a venture. A well-prepared, flexible business plan reduces uncertainty, helps secure funding and allows entrepreneurs to measure progress and take corrective action as the business develops.